Refined Product Futures Bouncing This Morning, With Prompt-Month ULSD Leading The Way
Refined product futures are bouncing this morning with the prompt-month ULSD contract leading the way higher. The April HO contract is outpacing its May counterpart as a late-season nor’easter pushes through the northern Atlantic seaboard, boosting heating oil demand in the region. Crude oil benchmarks are lagging behind this morning, with WTI and Brent oil taking .7-1% haircuts to start the day.
The collapse of Silicon Valley and Signature banks are taking credit for the continued weakness in oil futures, which are on pace to have the worst weekly loss of the year. While the equity markets have seemingly shrugged off the proto-banking crisis, global oil prices have been less resilient, breaking from their correlation and extending last week’s losses.
The EIA published an uplifting, if a bit ambitious, note this morning estimating the CO2 emissions caused by energy consumption will drop 25% by the end of the decade. The Administration cites higher adoption of EVs, energy efficiency increases, and renewable fuel sources as the main drivers for the reduction of America’s carbon footprint. Extended analysis on the subject, along with a suspiciously positive and quite lengthy discourse on the Inflation Reduction Act’s impact on fossil fuel consumption, can be found in the EIA’s Annual Energy Outlook, published this morning.
Gasoline and diesel futures have backed away from the technical cliff they considered base jumping from earlier this week, suggesting traders aren’t quite ready to push prices much lower since there is in fact a war still happening, and one of the belligerents is (was?) a global energy titan. Convergence of the 200-week moving average and the December 2021 low is serving as the last bastion of support on US crude oil charts, however. If this ~$65 level is broken, the path to much lower prices seems wide open.
Click here to download a PDF of today's TACenergy Market Talk.
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The Energy Bulls Are On The Run This Morning, Lead By Heating And Crude Oil Futures
The energy bulls are on the run this morning, lead by heating and crude oil futures. The November HO contract is trading ~7.5 cents per gallon (2.3%) higher while WTI is bumped $1.24 per barrel (1.3%) so far in pre-market trading. Their gasoline counterpart is rallying in sympathy with .3% gains to start the day.
The October contracts for both RBOB and HO expire today, and while trading action looks to be pretty tame so far, it isn’t a rare occurrence to see some big price swings on expiring contracts as traders look to close their positions. It should be noted that the only physical market pricing still pricing their product off of October futures, while the rest of the nation already switched to the November contract over the last week or so.
We’ve now got two named storms in the Atlantic, Philippe and Rina, but both aren’t expected to develop into major storms. While most models show both storms staying out to sea, the European model for weather forecasting shows there is a possibility that Philippe gets close enough to the Northeast to bring rain to the area, but not much else.
The term “$100 oil” is starting to pop up in headlines more and more mostly because WTI settled above the $90 level back on Tuesday, but partially because it’s a nice round number that’s easy to yell in debates or hear about from your father-in-law on the golf course. While the prospect of sustained high energy prices could be harmful to the economy, its important to note that the current short supply environment is voluntary. The spigot could be turned back on at any point, which could topple oil prices in short order.
Click here to download a PDF of today's TACenergy Market Talk.
Gasoline And Crude Oil Futures Are All Trading Between .5% And .8% Lower To Start The Day
The energy complex is sagging this morning with the exception of the distillate benchmark as the prompt month trading higher by about a penny. Gasoline and crude oil futures are all trading between .5% and .8% lower to start the day, pulling back after WTI traded above $95 briefly in the overnight session.
There isn’t much in the way of news this morning with most still citing the expectation for tight global supply, inflation and interest rates, and production cuts by OPEC+.
As reported by the Department of Energy yesterday, refinery runs dropped in all PADDs, except for PADD 3, as we plug along into the fall turnaround season. Crude oil inventories drew down last week, despite lower runs and exports, and increased imports, likely due to the crude oil “adjustment” the EIA uses to reconcile any missing barrels from their calculated estimates.
Diesel remains tight in the US, particularly in PADD 5 (West Coast + Nevada, Arizona) but stockpiles are climbing back towards their 5-year seasonal range. It unsurprising to see a spike in ULSD imports to the region since both Los Angeles and San Francisco spot markets are trading at 50+ cent premiums to the NYMEX. We’ve yet to see such relief on the gasoline side of the barrel, and we likely won’t until the market switches to a higher RVP.